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FBA: Is Fulfilled by Amazon the New Frontier?

There’s a new kid in town, and everybody is talking about it. It’s called Fulfilled by Amazon or FBA and it’s making a lot of people a lot of money in a matter of months. Is it too good to be true? I think I’m about to find out.

In the last year, FBA has exploded in popularity, and for good reason. Making money from information products on a blog takes a lot of time. It takes a year or two to build up the audience and the authority and build your products and be making some decent money.

What if you could be making thousands in just a few months? It can and does happen with FBA.

What’s the catch? It’s a bit complicated to get set up and you need to put out thousands of your own money up front to buy product and get it to Amazon for sale. That’s enough to scare a lot of people off.

Of course, the fact that a lot of people get scared off is a good thing. It’s called a “barrier to entry” in MBA speak, and it means that it limits your competition somewhat if you do have the cash and courage to take the leap.

What is Fulfilled by Amazon?

Many people think of Amazon as simply a (very) large online retailer. They’re more than that. They’re also an online marketplace.

Fulfilled by Amazon is simply a service provided by Amazon where they will allow you to use their considerable infrastructure and customer base to advertise and sell your products. They will also warehouse, pack, and ship your goods and handle customer service.

FBA is by far the easiest way to start a business selling physical goods.

Where do You Find Product to Sell?

There are three levels of FBA business based on how you source your products:

Retail Arbitrage

Wholesale

Private Label

Retail Arbitrage

In this business model, you spend your spare time running around to thrift stores and clearance racks finding awesome deals. You then buy as much product as you can, box it up in your garage, and send it to Amazon for sale.

This works and works well. People can and have replaced their full-time income by doing this. However, it’s a ton of busy work and you have to spend way too much time shopping for my tastes (though you can do this online).

The business doesn’t really scale, and you can’t run it from a sailboat in the Pacific, so it isn’t a good option for me.

Despite these drawbacks, it isn’t very cash intensive and you can start making profits right away. Some people have used Retail Arbitrage successfully to learn how to do FBA and to raise enough cash to work their way up the food chain to a Private Label business (see below).

One further caution: This is becoming very popular. If you use a list or service to find deals, you likely won’t succeed. So many people are doing this that by the time you get your product to Amazon, the price will have dropped due to the flood of product from everyone else who bought the same deal.

If you’re going to do this, don’t use a list. Find the deals yourself and get them online quickly.

Wholesale

In this model, you buy large quantities of a product from a factory and distributor and sell them on Amazon.

This is, in my view, a far better model than retail arbitrage. At the very least, you’re not hitting the thrift stores. On the other hand, you’ll have to spend more up front for your inventory.

On the other hand, you don’t own the brand and there’s nothing stopping somebody else from buying the exact same product to sell on Amazon.

You will be competing with others with the same product. You can compete on price (though this will trigger a race to the bottom) or with a better photo and listing, more positive reviews, and Amazon pay-per-click advertising.

This is a viable business and worth exploring. It isn’t clear, though, how one might take this off of Amazon if they suddenly changed their terms of service or upped their FBA fees. You are more vulnerable to both competitors and Amazon than you are in a Private Label business.

Private Label

With a private label, you are building your own brand. You choose a product and have a manufacturer make it just for you with your branding on it. Preferably, you would find a product that you could modify in some way so that it’s different from similar products on the market.

With a private label, you can differentiate yourself from your competitors, and the brand can live on outside of Amazon. You also have the very powerful ability to cross-promote your products and build a loyal customer base.

You can also sell a private label business and move on to another project later. This is a very significant advantage.

The Private Label Action Plan

How do you build a private label business? The basic steps are simple, though there’s a lot to learn about each one:

Choose a niche: Your products should be related to each other so that you can cross promote them and build a consistent brand. This is just like choosing a niche for a website, and choosing a niche you know well is a huge advantage.

Choose a first product: This should ideally be something fairly simple to start. and something that you can tweak to make your own.

Find a supplier: The majority of people use a Chinese supplier that they find on Alibaba.

Ship to Amazon

Launch and get 5-15 reviews: Social proof is important. Use your existing website, a launch service, or family and friends to get a few seed reviews up on Amazon.

Promote with Amazon pay-per-click: You need to get your sales up to get noticed by Amazon’s search engine and the easiest way to do this is to turn your profits back into advertising until you start to see steady sales.

Return to step 2 and repeat for products 2-5.

Once you have about 5 products doing decent sales, you will have a sustainable business. Some people have gotten to this point in under a year. Profit margins are often around 50%, and a $10-30k per month business is definitely within reach.

Plan on it taking a few thousand dollars for initial inventory and then turning profits back into more inventory, advertising, and new products for at least 3-6 months, if not a year.

Of course, there are always challenges and problems to overcome as in any business, and steps 2 and 3 are pretty big steps and very important to get right, but if you can get a good product onto Amazon, the rest is pretty systematic.

FBA Resources to Get You Started

My first introduction to FBA came from this article on Niche Pursuits. This had a pretty big impact on me since Spencer Haws, the creator of Long Tail Pro is a pretty influential person in the niche website world. If he was thinking about pivoting to FBA, then it was something that I should pay attention to!

This interview with Ryan Moran from Freedom Fast Lane does a great job of laying out the whole business plan and emphasizing the power of the brand. It’s the story about building a million dollar yoga business in 12 months(!) and is a great introduction to FBA.

Jungle Scout sell software for FBA and they’re currently running a great live demonstration where they will be finding a new product and bringing it to market completely publicly. As of the writing of the article, they’re still choosing the product. The first in the series is here.

My Plans

So does this mean that I’m going to drop the sailing website and jump on the FBA band-wagon? Not at all!

I do plan to explore FBA and am looking at two joint ventures with friends. I plan to start my own sailing related brand and my sailing website will be the perfect launching platform for the business.

I will slow down a bit on the sailing website so that I can put some energy into FBA, but I won’t let it go.

What do you think about FBA? Have you tried it or know people who have? Tell us about it in the comments below.